Real and financial crises in the Keynes–Kalecki structuralist model: An agent‐based approach

Abstract

Agent‐based models are inherently microstructures—with their attention to agent behavior in a field context—and only aggregate up to systems with recognizable macroeconomic characteristics. One might ask why the traditional Keynes–Kalecki or structuralist (KKS) model would bear any relationship to the multi‐agent modeling approach. This paper shows how KKS models might benefit from agent‐based microfoundations, without sacrificing traditional macroeconomic themes, such as aggregate demand, animal spirits and endogenous money. Above all, the integration of the two approaches gives rise to the possibility that a KKS system—stable over many consecutive time periods—might lurch into an uncontrollable downturn, from which a recovery would require outside intervention. As a by‐product of the integration of these two popular approaches, there emerges a cogent analysis of the network structure necessary to bind real and financial agents into an integrated whole. It is seen, contrary to much of the existing literature, that a highly connected financial system does not necessarily lead to more crashes of the integrated system.

The network origins of aggregate fluctuations: A demand-side approach

“…Our results are consistent with a growing literature that emphasizes the importance of centrality in the determination of outcomes influenced by social interaction that is structured by network connections (see, for example, Markose et al, 2012;Buechel et al, 2015;Jia et al, 2015;Alatas et al, 2016;Yun et al, 2019). Furthermore, and in keeping with earlier work (see, for example, Dosi et al, 2010;Setterfield and Budd, 2011;Gouri Suresh and Setterfield, 2015;Gibson and Setterfield, 2018;Dosi et al, 2019), our analysis is also suggestive of ways in which typically aggregative demand-led models of growth and fluctuations can be imbued with micro-foundational features that advance our understanding of the dynamics of a demand-led economy.…”

Neoclassical influences in agent‐based literature: A systematic review

“…In the tradition of Classical economists, Russo (2017) proposes an AB macroeconomic model with social classes and endogenous crises in which business cycles and crises endogenously emerge as a result of the interaction between financial and real factors underlying the process of capitalist production. Yet, Gibson and Setterfield (2018) show how Keynes–Kalecki or structuralist model might benefit from AB microfoundations, without sacrificing traditional macroeconomic themes, such as aggregate demand, animal spirits, and endogenous money. Other contributions have further underlined the alternative nature of the AB analysis, highlighting its differences concerning the prevailing neoclassical approach (Caverzasi & Russo, 2018; Dilaver et al., 2018; Fagiolo & Roventini, 2012; Haldane & Turrell, 2018).…”

The Agent‐based Approach to Post Keynesian Macro‐modeling

“…Different from the other models surveyed in this paper, which are constructed in a bottom–up fashion, Suresh and Setterfield () (but see also Gibson and Setterfield, , b) build a standard aggregative structural model and then reformulate only the relevant equations to account for heterogeneity in the firm sector. Building on Setterfield and Budd (), the path‐dependency of the economic system is investigated by Suresh and Setterfield () focusing on the “state of long‐run expectations” as the reaction of agents to fundamental uncertainty in the Keynesian sense.…”